Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 24 — Penalties for errors
Part 2 — Amount of penalty
268

(b)
in applying paragraph 5 in accordance with sub-paragraphs (1) and
(2) above, group relief may be taken into account (despite paragraph
5(4)(a)).
      (5)
The potential lost revenue in respect of a loss is nil where, because of the
nature of the loss or P’s circumstances, there is no reasonable prospect of the
5
loss being used to support a claim to reduce a tax liability (of any person).
Potential lost revenue: delayed tax
8     (1)
Where an inaccuracy resulted in an amount of tax being declared later than
it should have been (“the delayed tax”), the potential lost revenue is—
(a)
5% of the delayed tax for each year of the delay, or
10
(b)
a percentage of the delayed tax, for each separate period of delay of
less than a year, equating to 5% per year.
      (2)
This paragraph does not apply to a case to which paragraph 7 applies.
Reductions for disclosure
9     (1)
A person discloses an inaccuracy or a failure to disclose an under-
15
assessment by—
(a)
telling HMRC about it,
(b)
giving HMRC reasonable help in quantifying the inaccuracy or
under-assessment, and
(c)
allowing HMRC access to records for the purpose of ensuring that
20
the inaccuracy or under-assessment is fully corrected.
      (2)
Disclosure—
(a)
is “unprompted” if made at a time when the person making it has no
reason to believe that HMRC have discovered or are about to
discover the inaccuracy or under-assessment, and
25
(b)
otherwise, is “prompted”.
      (3)
In relation to disclosure “quality” includes timing, nature and extent.
10    (1)
Where a person who would otherwise be liable to a 30% penalty has made
an unprompted disclosure, HMRC shall reduce the 30% to a percentage
(which may be 0%) which reflects the quality of the disclosure.
30
      (2)
Where a person who would otherwise be liable to a 30% penalty has made a
prompted disclosure, HMRC shall reduce the 30% to a percentage, not
below 15%, which reflects the quality of the disclosure.
      (3)
Where a person who would otherwise be liable to a 70% penalty has made
an unprompted disclosure, HMRC shall reduce the 70% to a percentage, not
35
below 20%, which reflects the quality of the disclosure.
      (4)
Where a person who would otherwise be liable to a 70% penalty has made a
prompted disclosure, HMRC shall reduce the 70% to a percentage, not
below 35%, which reflects the quality of the disclosure.
      (5)
Where a person who would otherwise be liable to a 100% penalty has made
40
an unprompted disclosure, HMRC shall reduce the 100% to a percentage,
not below 30%, which reflects the quality of the disclosure.

Finance Bill
Schedule 24 — Penalties for errors
Part 3 — Procedure
269

      (6)
Where a person who would otherwise be liable to a 100% penalty has made
a prompted disclosure, HMRC shall reduce the 100% to a percentage, not
below 50%, which reflects the quality of the disclosure.
Special reduction
11    (1)
If they think it right because of special circumstances, HMRC may reduce a
5
penalty under paragraph 1 or 2.
      (2)
In sub-paragraph (1) “special circumstances” does not include—
(a)
ability to pay, or
(b)
the fact that a potential loss of revenue from one taxpayer is balanced
by a potential over-payment by another.
10
      (3)
In sub-paragraph (1) the reference to reducing a penalty includes a reference
to—
(a)
staying a penalty, and
(b)
agreeing a compromise in relation to proceedings for a penalty.
Interaction with other penalties
15
12    (1)
The final entry in the Table in paragraph 1 excludes a document in respect
of which a penalty is payable under section 98 of TMA 1970 (special returns).
      (2)
The amount of a penalty for which P is liable under paragraph 1 or 2 in
respect of a document relating to a tax period shall be reduced by the
amount of any other penalty which P has incurred and the amount of which
20
is determined by reference to P’s tax liability for that period.
      (3)
In the application of section 97A of TMA 1970 (multiple penalties) no
account shall be taken of a penalty under paragraph 1 or 2.
Part 3
Procedure
25
Assessment
13    (1)
Where P becomes liable for a penalty under paragraph 1 or 2 HMRC shall—
(a)
assess the penalty,
(b)
notify P, and
(c)
state in the notice a tax period in respect of which the penalty is
30
assessed.
      (2)
An assessment—
(a)
shall be treated for procedural purposes in the same way as an
assessment to tax (except in respect of a matter expressly provided
for by this Act),
35
(b)
may be enforced as if it were an assessment to tax, and
(c)
may be combined with an assessment to tax.
      (3)
An assessment of a penalty under paragraph 1 must be made within the
period of 12 months beginning with—
(a)
the end of the appeal period for the decision correcting the
40
inaccuracy, or

Finance Bill
Schedule 24 — Penalties for errors
Part 3 — Procedure
270

(b)
if there is no assessment within paragraph (a), the date on which the
inaccuracy is corrected.
      (4)
An assessment of a penalty under paragraph 2 must be made within the
period of 12 months beginning with the end of the appeal period for the
assessment of tax which corrected the understatement.
5
      (5)
For the purpose of sub-paragraphs (3) and (4) a reference to an appeal period
is a reference to the period during which—
(a)
an appeal could be brought, or
(b)
an appeal that has been brought has not been determined or
withdrawn.
10
      (6)
Subject to sub-paragraphs (3) and (4), a supplementary assessment may be
made in respect of a penalty if an earlier assessment operated by reference
to an underestimate of potential lost revenue.
Suspension
14    (1)
HMRC may suspend all or part of a penalty for a careless inaccuracy under
15
paragraph 1 by notice in writing to P.
      (2)
A notice must specify—
(a)
what part of the penalty is to be suspended,
(b)
a period of suspension not exceeding two years, and
(c)
conditions of suspension to be complied with by P.
20
      (3)
HMRC may suspend all or part of a penalty only if compliance with a
condition of suspension would help P to avoid becoming liable to further
penalties under paragraph 1 for careless inaccuracy.
      (4)
A condition of suspension may specify—
(a)
action to be taken, and
25
(b)
a period within which it must be taken.
      (5)
On the expiry of the period of suspension—
(a)
if P satisfies HMRC that the conditions of suspension have been
complied with, the suspended penalty or part is cancelled, and
(b)
otherwise, the suspended penalty or part becomes payable.
30
      (6)
If, during the period of suspension of all or part of a penalty under
paragraph 1, P becomes liable for another penalty under that paragraph, the
suspended penalty or part becomes payable.
Appeal
15    (1)
P may appeal against a decision of HMRC that a penalty is payable by P.
35
      (2)
P may appeal against a decision of HMRC as to the amount of a penalty
payable by P.
      (3)
P may appeal against a decision of HMRC not to suspend a penalty payable
by P.
      (4)
P may appeal against a decision of HMRC setting conditions of suspension
40
of a penalty payable by P.
16
An appeal may be brought to—

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Schedule 24 — Penalties for errors
Part 4 — Miscellaneous
271

(a)
the General Commissioners, in so far as the penalty relates to direct
tax, or
(b)
a VAT and duties tribunal, in so far as the penalty relates to VAT.
17    (1)
On an appeal under paragraph 15(1) the appellate tribunal may affirm or
cancel HMRC’s decision.
5
      (2)
On an appeal under paragraph 15(2) the appellate tribunal may—
(a)
affirm HMRC’s decision, or
(b)
substitute for HMRC’s decision another decision that HMRC had
power to make.
      (3)
If the appellate tribunal substitutes its decision for HMRC’s, the appellate
10
tribunal may rely on paragraph 11—
(a)
to the same extent as HMRC (which may mean applying the same
percentage reduction as HMRC to a different starting point), or
(b)
to a different extent, but only if the appellate tribunal thinks that
HMRC’s decision in respect of the application of paragraph 11 was
15
flawed.
      (4)
On an appeal under paragraph 15(3)—
(a)
the appellate tribunal may order HMRC to suspend the penalty only
if it thinks that HMRC’s decision not to suspend was flawed, and
(b)
if the appellate tribunal orders HMRC to suspend the penalty—
20
(i)
P may appeal to the appellate tribunal against a provision of
the notice of suspension, and
(ii)
the appellate tribunal may order HMRC to amend the notice.
      (5)
On an appeal under paragraph 15(4) the appellate tribunal—
(a)
may affirm the conditions of suspension, or
25
(b)
may vary the conditions of suspension, but only if the appellate
tribunal thinks that HMRC’s decision in respect of the conditions
was flawed.
      (6)
In sub-paragraphs (3)(b), (4)(a) and (5)(b) “flawed” means flawed when
considered in the light of the principles applicable in proceedings for judicial
30
review.
      (7)
Paragraph 14 (see in particular paragraph 14(3)) is subject to the possibility
of an order under this paragraph.
Part 4
Miscellaneous
35
Agency
18    (1)
P is liable under paragraph 1(1)(a) where a document which contains a
careless inaccuracy (within the meaning of paragraph 3) is given to HMRC
on P’s behalf.
      (2)
In paragraph 2(1)(b) and (2)(a) a reference to P includes a reference to a
40
person who acts on P’s behalf in relation to tax.
      (3)
Despite sub-paragraphs (1) and (2), P is not liable to a penalty in respect of
anything done or omitted by P’s agent where P satisfies HMRC that P took

Finance Bill
Schedule 24 — Penalties for errors
Part 4 — Miscellaneous
272

reasonable care to avoid inaccuracy (in relation to paragraph 1) or
unreasonable failure (in relation to paragraph 2).
      (4)
In paragraph 3(1)(a) (whether in its application to a document given by P or,
by virtue of sub-paragraph (1) above, in its application to a document given
on P’s behalf) a reference to P includes a reference to a person who acts on
5
P’s behalf in relation to tax.
      (5)
In paragraph 3(2) a reference to P includes a reference to a person who acts
on P’s behalf in relation to tax.
Companies: officers’ liability
19    (1)
Where a penalty under paragraph 1 is payable by a company for a deliberate
10
inaccuracy which was attributable to an officer of the company—
(a)
the officer as well as the company shall be liable to pay the penalty,
and
(b)
HMRC may pursue the officer for such portion of the penalty (which
may be 100%) as they may specify by written notice to the officer.
15
      (2)
Sub-paragraph (1) does not allow HMRC to recover more than 100% of a
penalty.
      (3)
In the application of sub-paragraph (1) to a body corporate “officer”
means—
(a)
a director (including a shadow director within the meaning of
20
section 251 of the Companies Act 2006 (c. 46)), or
(b)
a secretary.
      (4)
In the application of sub-paragraph (1) in any other case “officer” means—
(a)
a director,
(b)
a manager,
25
(c)
a secretary, and
(d)
any other person managing or purporting to manage any of the
company’s affairs.
      (5)
A reference to P in this Schedule (including paragraph 15) includes a
reference to an officer of the company who is liable for a portion of the
30
penalty in accordance with this paragraph.
Partnerships
20    (1)
This paragraph applies where P is liable to a penalty under paragraph 1 for
an inaccuracy in or in connection with a partnership return.
      (2)
Where the inaccuracy affects the amount of tax due or payable by a partner
35
of P, the partner is also liable to a penalty (“a partner’s penalty”).
      (3)
Paragraphs 4 to 13 and 19 shall apply in relation to a partner’s penalty (for
which purpose a reference to P shall be taken as a reference to the partner).
      (4)
Potential lost revenue shall be calculated separately for the purpose of P’s
penalty and any partner’s penalty, by reference to the proportions of any tax
40
liability that would be borne by each partner.
      (5)
Paragraph 14 shall apply jointly to P’s penalty and any partner’s penalties.

Finance Bill
Schedule 24 — Penalties for errors
Part 5 — General
273

      (6)
P may bring an appeal under paragraph 15 in respect of a partner’s penalty
(in addition to any appeal that P may bring in connection with the penalty
for which P is liable).
Double jeopardy
21
P is not liable to a penalty under paragraph 1 or 2 in respect of an inaccuracy
5
or failure in respect of which P has been convicted of an offence.
Part 5
General
Interpretation
22
Paragraphs 23 to 26 apply for the construction of this Schedule.
10
23
HMRC means Her Majesty’s Revenue and Customs.
24
An expression used in relation to income tax has the same meaning as in the
Income Tax Acts.
25
An expression used in relation to corporation tax has the same meaning as
in the Corporation Tax Acts.
15
26
An expression used in relation to capital gains tax has the same meaning as
in the enactments relating to that tax.
27
An expression used in relation to VAT has the same meaning as in VATA
1994.
28
In this Schedule—
20
(a)
a reference to corporation tax includes a reference to tax or duty
which by virtue of an enactment is assessable or chargeable as if it
were corporation tax,
(b)
a reference to tax includes a reference to construction industry
deductions under Chapter 3 of Part 3 of FA 2004,
25
(c)
“direct tax” means—
(i)
income tax,
(ii)
capital gains tax, and
(iii)
corporation tax,
(d)
a reference to understating liability to VAT includes a reference to
30
overstating entitlement to a VAT credit,
(e)
a reference to a loss includes a reference to a charge, expense, deficit
and any other amount which may be available for, or relied on to
claim, a deduction or relief,
(f)
a reference to repayment of tax includes a reference to allowing a
35
credit,
(g)
“tax period” means a tax year, accounting period or other period in
respect of which tax is charged,
(h)
a reference to giving a document to HMRC includes a reference to
communicating information to HMRC in any form and by any
40
method (whether by post, fax, email, telephone or otherwise),
(i)
a reference to giving a document to HMRC includes a reference to
making a statement or declaration in a document,

Finance Bill
Schedule 25 — Amendments connected with Gambling Act 2005
Part 1 — Amendments of the Tax Acts
274

(j)
a reference to making a return or doing anything in relation to a
return includes a reference to amending a return or doing anything
in relation to an amended return, and
(k)
a reference to action includes a reference to omission.
Consequential amendments
5
29
The following provisions are omitted—
(a)
sections 95, 95A, 97 and 98A(4) of TMA 1970 (incorrect returns and
accounts),
(b)
sections 100A(1) and 103(2) of TMA 1970 (deceased persons),
(c)
in Schedule 18 to FA 1998 (company tax returns), paragraphs 20 and
10
89 (company tax returns), and
(d)
sections 60, 61, 63 and 64 of VATA 1994 (evasion).
30
In paragraph 7 of Schedule 1 to the Social Security Contributions and
Benefits Act 1992 (c. 4) (penalties) a reference to a provision of TMA 1970
shall be construed as a reference to this Schedule so far as is necessary to
15
preserve its effect.
31
In paragraph 7 of Schedule 1 to the Social Security Contributions and
Benefits (Northern Ireland) Act 1992 (c. 7) (penalties) a reference to a
provision of TMA 1970 shall be construed as a reference to this Schedule so
far as is necessary to preserve its effect.
20
Schedule 25
Section 104

Amendments connected with Gambling Act 2005
Part 1
Amendments of the Tax Acts
Exemption from corporation tax for profits of charitable companies from certain lotteries
25
1
In section 505(1)(f) of ICTA (charitable companies: exemption for profits
from lotteries), for the words from “a lottery if” to the end substitute “a
lottery if the profits are applied solely to the charitable company’s purposes
and—
(i)
the lottery is an exempt lottery within the meaning of
30
the Gambling Act 2005 by virtue of Part 1 or 4 of
Schedule 11 to that Act;
(ii)
the lottery is promoted in accordance with a lottery
operating licence within the meaning of Part 5 of that
Act; or
35
(iii)
the lottery is promoted and conducted in accordance
with Article 133 or 135 of the Betting, Gaming,
Lotteries and Amusements (Northern Ireland) Order
1985.”